Comment by mikeleeorg | Hacker News Reader

Comment by mikeleeorg | Hacker News Reader

Clients being unable to pay has been frustrating and made me want to do less consulting... That’s why I love selling products, I get paid up front and don’t have to worry about collecting payments.

This is exactly why I left the consulting biz too. I had a web development agency with a bunch of friends & ex-colleagues that was about to make $1M in profits after 3 years. That number would be much higher, had it not been for clients (mostly startups and small businesses) that weren't able to pay (so they claimed) or went out of business. This is despite collecting a deposit of 50% of the estimated costs up-front.

Before we broke $1M, I saw a great opportunity to develop a product, so I shifted my focus and have been doing that ever since.

Consulting is good for getting (relative) immediate cash up-front, while products can take a long time to begin earning that same amount of cash. However, if done well, products can scale and earn much more revenue in the long run.

Nathan is definitely taking the right approach for an individual entrepreneur. He's diversifying his income (consulting, apps, books) while presumably moving his focus away from consulting as his income from apps and books increases.

Good luck man!

I may take Brennan Dunn's (http://planscope.io) approach of getting paid 100% up front. I still have a lot to learn doing consulting.

Like you said, a balance of consulting and products is a good way to go.

Interesting link, I'm trying to diversify my income for the same reasons as above.

What is your thought process for charging 100% up front if you don't mind me asking.

So you don't have any accounts receivable. Then you never have to worry about a client not paying. That link isn't directly to where Brennan talks about it (maybe it was on a podcast?), but read his stuff and you will learn a lot. I know I have.

I have a couple long term, open-ended contracts right now that I'm consulting on, billing out anywhere from 10-40 hours per week on each. The deliverables are frequent, communication is open, I invoice every two weeks with detailed line items, and get paid within 7 days. There are no up front deposits - honestly, it goes against my own values, I'm uncomfortable getting paid for work I have yet to do. The terms are clear in the contracts with work stoppage clauses and all. It's worked well going on about 6 months of doing this. Maybe I'm lucky, and maybe this is the nature of doing long-term gigs or just having clients you mesh well with, but is this really all that unusual?

I have one client I work for 5-10 hours a week consistently. Absolutely love doing work for them. They always pay on time and things work great. So I totally know where you are coming from. Basically find great clients and treat them really, really well and fire your bad clients.

But sometimes it takes a while until you find the right clients. I learned that you have to be very cautious.

One of the problems is also, that some clients are not realistic enough, they are very optimistic, which may lead to not being able to pay you.

I've consulted in this manner and I'm surprised this isnt the norm. It reduces risk for both parties. The client is seeing tangible results sooner and you're minimising potential losses due to non-payment (for whatever reason).

Exactly... at least if you're doing agile development, it seems that you should get paid in an 'agile' way :)

For many engagements, we required both an upfront deposit and invoiced payments every two weeks. In addition to the benefits you guys cited, billing often can also help manage scope creep - though I know some agencies thrived off the additional income from change requests.

I agree that it's possible to build a roster of clients that always pay you, but when you start casting your net wider (which we did), you encounter a greater variety of clients. We grew to a team of 20+ developers and aimed to keep our pipeline near 100% utilization.

With that said, we only had a handful of clients that didn't or couldn't pay. This was early in our existence and we learned quickly how to avoid, and dump, bad clients.

> I'm uncomfortable getting paid for work I have yet to do.

But you're happy furnishing work to people they've yet to pay for?

In these small increments for projects of this scope, absolutely. For smaller things I have yet to cross that bridge, but honestly I'm going to try to steer clear from that type of work unless it comes from trusted connections.

Consulting may be tempting financially, but is a terrible idea strategically. For me, main realization was - why waste precious time helping others develop their ideas, when you can develop your own instead.

Consulting may be tempting financially, but is a terrible idea strategically

Depends on your strategy. Building a consultancy with employees can be great strategy. Just ask places like Thoughtworks.

I'm using my consulting work to fund our product development work. The stuff I'm doing isn't angel/VC friendly and using consulting work as a funding source seems to be a pretty good strategy to me ;-)

Can someone explain what happens here with the past due balances? I mean is it literally that someone says "Okay I will pay you x/hr to do this work" and then when you bill them they say "oops I don't have the money"? Why aren't more of these people in court and what business does someone have hiring someone to do work for them while not having money? It blows my mind that humans work that way but I guess I shouldn't be surprised.

I had one client who was an old fashioned software developer, he didn't like in my code the OOP, he was unable to understand it so he didn't want to pay me, he was oversea so the getting those money for the project was more expensive than actually the money.

In our case, clients have either: 1) Gone out of business and dissolved their businesses, or 2) Claimed they don't have the finances to pay us.

All clients enter into a contract with us. So when they don't pay, we have legal recourse. In #1, there's little we can do, except go to court and get in line as a debtor. In #2, we ended up with a promissory note stating they're legally bound to pay us as soon as they are able to. There are other avenues one can pursue, this is just the deal we worked out with them and all the lawyers involved.

I'm young and naive. Please tell me why there is no way for you to receive your money? Are they not contractually bound to give you a specific sum? Is getting that money just too much legal hassle and money spent on court fees?

They are contractually obligated to pay me, but it isn't worth it to collect. Plus, I still like them. It's mostly just startups that ran out of money.

"It's mostly just startups that ran out of money."

How is it excusable to have a finite sum of money, commit to paying you some of it, use all of it and then simply say "crap, we ran out of money". Some of the founders I've seen in the valley come off as incredibly immature and irresponsible, but this just amazes me, I genuinely cannot imagine being a businessperson and doing that.

It's actually a lot easier than you might imagine. You can kick off a $10K project with someone - when you have $50K in the bank and you expect to receive $50K in the next 4 - 8 weeks. As a result of many variables, you either don't receive that $50K and have blown through the first $50K on things you needed immediately (like salaries for your employees, light, the deposit on the project, etc.) - and because the project took 6 weeks longer than you anticipated, you never had the money when the project was done.

Don't be so quick to judge.

I am a consultant and have to deal with clients not paying on-time too - so I am not excusing it, but these things happen much more frequently than you may think.

"Don't be so quick to judge."

I don't understand. Do you NOT think people who do what you said above are irresponsible? If you have 50k in the bank and will need to use all of it on your employees and whatnot in the next 4-8 weeks, you absolutely, 100% should not be committing 10k to a project, it seems super irresponsible and amateurish. If I'm committing 10k to a project, I'm going to make damned sure I actually have 10k set aside for it. If you don't you absolutely should not be hiring anyone.

As I said....it's not always as black and white as that. Perhaps you DID set aside the $50K + $10K separately but then something comes up that you didn't forsee - which actually happens a lot (like one of your employees gets sick and needs surgery, their health insurance is blown through very quickly - or perhaps you didn't have health insurance for them - or one of a million other eventualities that happens when running your own business).

It's easy to judge people when you have never been through it. As much as you are responsible, the very art of starting a company from scratch means you have to deal with things that come up that were unexpected - on a regular basis. i.e. you can't plan for EVERY. SINGLE. Eventuality. It's literally impossible.

Yes, you may have gone through it and never had that issue - but not everybody has the same experience that you did. Don't assume because they don't have your exact experience that means they are irresponsible.

Someone getting sick might put you back on your schedule, but shouldn't be coming out of your own pocket. To the extent that delays in the project might mean delays in funding, I can accept that, but someone who can't judge expenditures out 4-6 weeks shouldn't be making financial commitments for 4-6 weeks in the future.

I say this as someone who ran a business, lost a lot of money, had checks bouncing, and all that. It was not pretty, but I didn't for one minute try to pin the blame on anyone but myself - I made poor financial decisions. I was irresponsible. It didn't seem like it at the time, but it was.

I am absolutely floored at your rationale here. Every single thing you describe is completely irresponsible. Didn't buy health insurance for your employees? You're not irresponsible, everyone else just "doesn't understand.

I'm not asking anyone to plan for every eventuality, but if you can't afford to pay someone, and still hire them anyway, I frankly don't think you deserve to run a business ever again. I feel like these founders should be named and shamed every single time this happens.

> How is it excusable [...]

The simple answer is "it's not." You're completely right that the people who do this crap are immature, irresponsible and have no business having the financial well-being of their employees in their hands.

If you've got $10k earmarked and you need it for something else (such as electricity), it's your responsibility to contact the vendor, cancel work immediately, pay whatever portion of the $10k you're legally obligated to pay them because you signed a goddamned contract and hope that you have enough left over for whatever you need.

My consulting contract specifically states that not only is the agreement between myself and the client company, but also between myself and the client company's principal(s) personally. I make it exceedingly clear both in the contract and in face-to-face discussions that I run a business, I'm not in the business of doing work without getting paid, and I will not waste months trying to get my money before turning to more serious measures (such as litigation, which has only had to happen once and was settled for the full amount within 24 hours of the original summons).

I'm young and naive. Please tell me why there is no way for you to receive your money? Are they not contractually bound to give you a specific sum? Is getting that money just too much legal hassle and money spent on court fees?

The biggest problems are:

* The client doesn't have any money to get - especially common with startups.

* The company disappears - bankruptcy almost always means that you will see nothing to very-little since you're likely one of many debtors.

* The amount of time it takes. Every hour you spend on dealing with debt collection, legal issues, etc. is an hour you're not spending on making clients happy, finding new work, developing your own product, etc.

The most cost effective solution is often to just write it off - and learn from the mistake you made in picking a client who could not pay.

Occasionally you can sell the debt on to a third party for some %age of the total figure - but that only works if the company looks like it can pay, and still involves admin work on your part.

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